WorleyParsons cut 1700 jobs to save money

Jenny Wiggins

Engineering company WorleyParsons has declared that its axing of thousands of staff will help it navigate the tough post mining boom environment that drove profit down by almost $250 million in the last year.

Extensive job cuts prevented headline profit falling further than the 23 per cent tumble the group experienced as total employee numbers fell by more than 4000 people. Some 1700 "overhead roles" were slashed in the restructure that took total staffing down to 35,600.

Despite the extensive cuts WorleyParsons' underlying net profit scraped in to the low end of the company's revised guidance of between $260 million and $300 million for fiscal 2014 following an earlier downgrade.

WorleyParsons chief executive Andrew Wood declined to specify the extent of WorleyParsons' cost-cutting program, but said the company was now in "normal operating mode" as it tries to become more competitive to retain big oil and gas customers like Shell and Chevron.

"There are significant opportunities out in the market for our business, but we also see a fair amount of volatility in that market as well," Mr Wood said.

WorleyParsons joins other companies servicing the mining sector experiencing tough conditions as the big miners focus on cost reduction and shelve major projects.

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Mr Wood has pledged to change the company's corporate culture and free up "bogged down" executives to spend more time with customers to improve profits. He defended the engineering group's vague outlook for 2015, arguing he cannot give a "clear picture" in difficult markets after group net profit fell 23 per cent to $249 million.

Analysts said the uncertain guidance made it hard to judge future earnings growth at the company. "Even with a higher tax rate, WorleyParsons still met expectations," said UBS analyst Sam Theodore."Where there seemed to be some confusion in the market was around what management's various outlook statements implied for fiscal 2015 earnings."

The company cut its profits guidance late last year, having previously forecast annual underlying net profits of more than $322 million

WorleyParsons' stock has underperformed the S&P/SASX 200 over the past 12 months following profit warnings, down 19 per cent compared with a 10 per cent rise in the index.

But Mr Wood said new initiatives, like the establishment of a "WorleyParsons Academy" in Houston, Texas, to train staff and the development of new digital and advisory businesses would enable it to provide better services for its customers. "We're using our deep knowledge of what works and doesn't work in various parts of the world," he said.

The company is more optimistic about the outlook for the US and Canadian market than it is for the Australian market, with Mr Wood cautioning that he didn't see Australia as an "expansive market" in the short term.

WorleyParsons has set up a new joint venture with US infrastructure group MWH Global to pursue work with unconventional oil and gas groups in North America to take advantage of the boom in shale gas.

More than 50 per cent of the group's revenues are now derived from the US and Canada, with only 12 per cent generated in Australia and New Zealand.

Although annual group profit margins continued a five-year decline, dropping 0.8 per cent to 6.1 per cent, WorleyParsons' shares rose after second half margins jumped to 7.6 per cent from 4.7 per cent in the first half, the highest level for three years.

Operating cash flows also strengthened to $550 million from $444 million a year earlier. Earnings before interest and taxation fell 4.1 per cent in WorleyParsons' hydrocarbons division to $627 million; dropped 8.3 per cent to $131 million in its minerals, metals and chemicals business; and slid 40 per cent to $64 million in its infrastructure arm.